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FULL OF SCRAP Misery in herky-jerky motion

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Ferrous scrap has always had unpredictable pricing patterns—up $2 per ton one month followed by a $5-per-ton increase the next and then down $5 the following month.

Years ago, a $10 or $12 move was a dramatic change. All of that seemed to end in 2004, when the automakers' factory bundles built a new Everest at more than $450 per ton and dragged along the others—not up to the peak of $400-plus a ton, but to the $200- and $300-per-ton level.

Since then, an unusual price phenomenon has occurred almost every year. Ferrous prices climb to a peak of, say, $350 per ton, but then spend the next five or six months tumbling. The steepest such plunge came in late 2004 and early 2005, when the auto bundle numbers rose to $442.50 per ton in November 2004 but were down to $155 by the following June. A year later they scaled the mountain again, reaching $366 per ton in July 2006 before plunging to $210 by November. And after climbing to $352 per ton in March this year, they quickly lost close to $90 in value.

If this is the new pattern, purchasing agents at steel mills and foundries are going to need new budgeting spreadsheets for their computers, perhaps something called Excel give-or-take $100 each month.

Actually, when looked at over several decades, it is simply the ferrous market behaving in its usual erratic pattern. Nowadays, though, that pendulum has a wider swing. A so-called sideways market used to be up or down $1 or $2 per ton; today, some consider a $10 swing an unchanged market. How does the scrap buyer at a mill plan for such wide price variations from month to month, and how does he or she explain it to the boss each month?

This is not to say that scrap dealers aren't feeling the heat of higher prices as well. Those with industrial steel accounts tied to a published price know their suppliers at a stamping plant or a machine shop will be looking for that added value in the check they get from the dealer the following month. And when the published price index plunges by, say, $60 or $70 per ton—as it did in May—will they be able to sell that high-priced scrap the following month and recoup its cost?

In bygone years, dealers would simply "lay it down" in their yards and wait until the price came back up, but at $300 per ton and the worry that the price might tumble again, it's not easy to take that much of a loss. It was different for their fathers and grandfathers. They could handle the loss of a few dollars a ton on 1,000 tons of No. 1 bundles. Today, a comparable move costs their sons or daughters $60,000 to $70,000.

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